Musings on leadership, management, strategy, economics, philosophy, and current affairs.

09/09/2013

Not only Indonesia’s population is large and economy is growing rapidly, the demographic trends are also in the country’s favor. There are 240 million people out of which around 75 million are middle or above class, whose monthly household spend is IDR 2 million or above (i.e. around USD 180 p.m.+ or USD 2200 + per annum). And this class is expected to increase by 8 to 9 million every year (McKinsey report).

More than 60% of its residents are in their principal working years i.e. between 20-65 years. And another 27% is below 15 years i.e. low dependency ratio and large incoming workforce.

Granular look - half of 75 million reside in the five most-populous provinces in Java. 12 cities with more than 1 million of middle and above class, but this is expected to disperse and by 2020, the number of cities with 1million + middle class is expected to be 22, as per McKinsey. Key emerging cities are - Palembang, Makassar, Batam, Semarang, Pekanbaru, and Padang)

09/05/2013

Income
Tax: All residents are required to pay income tax, which is progressive with
top tax rate @ 30% applicable on the income over IDR 500 million per annum
(appx USD 45k).

Corporate
Tax: The rate of corporate tax on profits is 25%. The regime encourages share
listing, as the corporate tax rate is lower at 20% for entities with 40% or
more shares listed. SMEs with a turnover of less than IDR 50 billion (appx USD
4.5 million) are entitled to a discount of 50% of the tax rate.

Withholding
Tax: There are varieties of withholding taxes. Generally @ 20% is applicable on
payments to non-residents.

09/04/2013

In
this post I will cover some legal aspects more relevant from foreign investors'
standpoint. Most of the legal system follows European Law.

About convertibility - IDR (Indonesian Rupiah) is fully
convertible without any restrictions. Though there are certain rules such as
notification to BI (Bank of Indonesia) if the amount is more than USD 10,000.
Channeling of funds should be through Indonesian resident banks. But nothing
restrictive.

Similarly entities are allowed to avail foreign loans though
notifications and regular reporting is required. In some cases pre-loan
notification is also required such as when the loan tenor is more than a year.

Similar to European Civil Law the companies in Indonesia have two
layers of management and shareholders (supervisors) - wherein management is
called board of directors and supervisors are called board of
commissioners.

How to establish a company: At least two shareholders are required
and the process, though simple, takes around two months. Following are the
broad steps:

1) Take an approval from BKPM (Foreign Investment Coordinating
Body). This can be done either before or after formation of a company.

2) Send the Articles for approval by Ministry of Law and Human Rights
(MoLHR)

3) After obtaining above approvals register the company with
Department of Trade.

Representative Offices: Foreign investors can also open a rep
office instead of registering the companies if the purpose is mainly to liase,
after sales services, or market research. As this entity is allowed to enter
into agreements with staff and lease premises, but is not allowed to conduct
any business activities.

Restricted Structures: Partnerships and to large extent
Co-operatives are not open to foreign participations.

09/03/2013

This is my first post with respect to Indonesia, and this is mostly about the macro economic factors. It is possible that one would find different numbers from different sources and it can be all over the places. For an example GDP per capita figure ranges between USD 3680 to USD 5000 by some accounts. However, it does not change the fact that the 240 million population based economy has either crossed or just about to cross $1 trillion mark. The growth rate is healthy since 2010, growing over 6% and is estimated to grow at the rate of 6.2% in 2014. The growth is driven by the real consumption, which is growing at the rate of around 5% y-o-y. Unemployment rate is low and has reduced from a high of 8% in 2009 to 6% in 2013.

However, on trade front there is an increase in the imports and decline in the exports resulting in a significant decline in the trade balance. In 2013, current account is estimated to be in deficit (3% of GDP) as comapred to 2% surplus in 2009.

S&P has rated BB+, which the country is expected to maintain in the medium term.

09/02/2013

I stopped writing my blog a while ago because I did not want to write what is already there on the web nor did I want to make it a personal diary. I plan to start writing again as I have recently shifted to Indonesia and there is lot to absorb from the business environment, which I plan to pen down in my blogs. While this can be a good starting point for any potential investor / manager in Indonesia, it will also help me in organizing my learnings.

05/23/2011

For the first time I have come across the concept of Open Innovation while reading the interview of Henry Chesbrough. I must say the concept is quite intuitive as instead of supporting manufacturing over services or visa versa Henry is propagating adoption of services by the manufacturing sector to come out of the commodity trap. The increased flow of knowledge has reduced the product life cycles thereby increased threat of commoditization of the products. He advocates that companies should tear down the wall of it's R&D and ask the question, 'How can I make my product a platform?'. Platform is a place where others can build along or on top i.e. to continuously think how my product can help others to provide their product or services on top of my product or along with my product. He quotes an example of iStore which created the platform for thousands of app developers. I am quite sure that this concept will catch on sooner than expected. Here is the link - http://www.strategy-business.com/article/11210?pg=all

05/10/2011

One of the major changes post-crisis has been in evaluating the life and career options. HBS Professor Clay Christensen (Author of Innovator's Dilemma and Seeing What's Next) was asked to address this question to the class of 2010. Instead of providing for straight answers, he asked the class to find cogent answers to three questions - 1) How can I be sure that I will be happy in my career? 2) How can I be sure that I will find the enduring source of happiness in relationship with my family? 3) How can I be sure to stay out of jail (i.e. lead a life of integrity).

He does offer his answers and methods that he applied to find these answers. For the first question the author allocated one hour every day from his extremely busy schedule (while studying) to think about the purpose of his life. For the second, he kept reminding himself of taking decisions for the long term i.e. investing time in building relationship. For the third question, he has very accurately summed up in one sentence - it is easier to hold to your principles 100% of the time than to hold 98% of the time. One last advice he offers is to choose the right yardstick to measure the success in life. He measures his by the number of people he has positively impacted.

05/04/2011

It is always refreshing to re-read some classics and in business writings Daniel Goleman's original article on What Makes a Leader in HBR is one of the such articles. It was originally published in 1998 and still demands compulsory reading for anyone looking forward to becoming a leader or recruiting one. The author, based on extensive research, points out that the old model of IQ and technical skills heavy requirement of leadership is now replaced with Emotional Intelligence (EI) heavy model where EI has become twice as more important than IQ and technical skills. In my experience most of the people are aware of the term EI but associate it mostly with empathy or friendliness. Whereas, Daniel has listed five skill sets that combined makes for EI. Three of skills are related with self: self-awareness, self-regulation, and motivation and two are related with others: empathy and social skills. In my opinion very rightly self-awareness and self-regulation have occupied the slot number one and two respectively but I doubt if they have received the corresponding importance by the hopeful leaders or leadership assessors. Another very important point that the author brings out is the key characteristics of motivation, as he emphasizes that motivation based on external factors such as salary or status is not what makes effective leaders but in contrast motivation by deeply embedded desire to seek learning and challenges are required for effective leadership. Empathy is probably well understood, at least intellectually. However, social skills are most often mistaken only for large number of acquaintances. Whereas, according to the author social skill is friendliness with purpose which includes moving people in the direction you desire. And for this one has to be aware of the self, coming to full circle.

10/14/2009

There are many books on presentation skills focusing mainly on the style. Bill Lane, Jack Welch's speechwriter, focused mainly on the substance in his book Jacked Up. He elucidates the importance of presentations in internal communications (whereas, most of the other books are directed towards external communication) of any company. He describes in detail how Jack Welch used this effective tool in changing the internal language of the behemoth GE. Some of the valuable tips apart from the usual ones of being short, prepare thoroughly, do not be a figurehead, tape your presentation - rehearse, should not be boring, use effective anecdotes, are -

not to convey the impression that you are speaking to an unimportant audience,

appearing nervous is fine as it conveys that you care,

never make somebody else's presentation,

you are being judged every moment by everyone in the room,

season a success story with where you came up short,

first draft of presentation must be yours,

when you blow your success devote only a minute and rest nine minutes in explaining why that success occurred,

and the best of all is - TOTAL CANDOR 'stop bullshitting or get off the stage'.

I personally loved the last one as now days many presentations are only about blowing own horns and rampant misrepresentation of the facts in the guise of clever talking - 'candor' is usually thrown out of the window. This behavior, if not checked or simply ignored by the decision makers in the room, has the potential of long-term destructive effects in any company.

At some point Jack Welch filtered the big meetings presentation to following five charts, which are quite useful for any big presentation -

09/24/2009

I was discussing with one of the consultants regarding advertisement strategy of our products - hows and whats. In a consultants usual lingo there are many complexities involved in formulating the advertisement strategy. However, simply put advertisement is just another form of a 'story' around the object. And the ingredients of any good 'story' - characters with whom one can relate, mystery to trigger the imagination, anticipation, surprise element, and a satisfying climax - are precisely the requirements of any advertisement.

I think in most of the life and business situations 'stories' play one of the most important roles and the difference between two competing players is made by their story-telling skill. We are probably born with this skill, as I observe in most of the kids, but over the period of time due to lack of formal attention many tend to loose this pivotal skill.